The past year has been an active one for accounting standards updates (ASUs). Fortunately for those preparing for year end, the fourth quarter only had one ASU issued and the majority of the 17 updates issued by the Financial Accounting Standards Board (FASB) during 2015 are narrow in scope or simplifications of existing standards. The New Year promises broader changes from the FASB, however. Major projects, including the Leasing Standard have been approved and are pending publication in early 2016.

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The information in this MHM Messenger is a brief summary and may not include all the details relevant to your situation.
Please contact your MHM auditor to further discuss the impact on your audit or audit report.
Some of the current requirements remain. Entities
will need to present disclosures for their deferred
taxes, including the significant components of the
deferred tax assets and liabilities. They must present
net deferred tax assets and liabilities by jurisdiction
and tax-paying component. Current taxes payable/
receivable will have to be presented separately from
deferred taxes.
The new standard takes effect for public business
entities for fiscal years and interim periods in fiscal
years beginning after December 15, 2016 (2017
calendar year). All other entities will be required
to adopt the measure in fiscal years beginning
after December 15, 2017 (2018 calendar year) and
interim periods beginning after December 15, 2018.
Early adoption is permitted at the beginning of any
period and application can be either prospective or
retrospective.
For more information, please see FASB Update
Eliminates the Current Portion of Deferred Taxes.
Accounting for Leasing Approved
The FASB completed its draft for the new leasing
standard, and it is anticipated the new standards will
be released in early 2016.
Lessor accounting will be similar to current practice.
Direct financing and sales type leases are retained,
The past year has been an active one for accounting
standards updates (ASUs). Fortunately for those
preparing for year end, the fourth quarter only had one
ASU issued and the majority of the 17 updates issued
by the Financial Accounting Standards Board (FASB)
during 2015 are narrow in scope or simplifications of
existing standards.
The New Year promises broader changes from the
FASB, however. Major projects, including the Leasing
Standard have been approved and are pending
publication in early 2016.
Balance Sheet Classification of Deferred
Taxes
With ASU 2017-17 Income Taxes (Topic 740) Balance
Sheet Classification of Deferred Taxes, deferred
income taxes are to be classified as noncurrent on a
company’s balance sheet. This simplifies the current
method of accounting by eliminating the need to
categorize deferred tax assets and liabilities based
on the classification of the underlying balance sheet
item and the requirement to schedule out the reversal
of net operating loss carryforwards.
January 2016
Preparing for the New Leasing Standard and Other Developments from the
Fourth Quarter 2015

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however, the standard will eliminate the leverage
lease model. Some items, such as initial direct costs
of entering into a lease, may require modifications of
procedures and accounting for some lessors.
Lessee accounting will undergo more significant
changes. The new standards will require that all
leases be capitalized, with the only exception being
those that are shorter than one year. As under existing
standards, lessees will classify leases into two
categories, a “finance” or an “operating” lease using
a similar method to the lease criteria used in current
practice. Finance leases will recognize income and
cash flow statements in a method that is similar to
the one used in a capital lease type today. Operating
leases will follow income statement and cash flow
statement recognition that’s similar to current practice.
The capitalization of a lease on the balance sheet will
exclude non-lease components, such as maintenance
services provided on a copier. Lessees will have
the option to elect to not separate the non-lease
components based on the class of the underlying
leased asset. An election to not separate a non-lease
component will likely save cost of accounting for a
lease but will increase the balance sheet asset and
liability recorded.
In addition, the new standard will require the use of
the implicit rate for discounting lease payments with
an option for nonpublic business entities to elect the
use of the risk-free rate. Increased disclosures are
expected related to options, covenants and other
contractual terms, significant terms that have not yet
commenced and other significant judgments. Other
changes include a new definition of a lease, changes
to the accounting for initial direct costs of a lease and
the accounting by an intermediate lessor (sublessor).
Public companies will adopt the standard for annual
and interim periods beginning after December 15,
2018. This includes not-for-profit entities that have
issued, or are a conduit bond obligor for, securities
that are traded, listed or quoted on an exchange or
over-the-counter market and employee benefit plans
that file or furnish statements to the SEC. All other
entities will adopt for annual periods beginning after
December 15, 2019 and interim periods in the following
annual period. Early adoption will be permitted.
Evaluation of the impact of the new leasing guidance
will be important for many entities that have financial
covenants, such as those often associated with debt,
and compensation arrangements that are tied to the
financial position of the entity. For instance, contract
terms that are based on the ratio of debt to liabilities
may be impacted by adoption of the new standard.
Entities may need to modify contracts that will be
in existence when the new standard is adopted or
consider the impact of the new standard when entering
into new arrangements in order to avoid triggering
violations upon adoption.
Transition will allow for a modified retrospective
approach. Entities will be able to recognize the right
to use asset and lease liability at the date of adoption
and adjustments will be recognized through equity.
Lessees can elect during transition not to assess
whether any expired or existing contracts are or
contain leases; lease classification for any expired or
existing leases and initial direct costs for any existing
leases.
For more information, please see Leasing Project
Update.

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Financial Classification and Measurement
In the first ASU of 2016, the FASB made several
updates to the classification and measurement
of financial instruments. ASU 2016-01 Financial
Instruments - Overall (Subtopic 825-10) Recognition
and Measurement of Financial Assets and Financial
Liabilities requires all equity securities to be measured
at fair value except for equity method investments.
It creates an exception for entities that have equity
investments that do not have readily determinable fair
values. The changes also require that changes in fair
value of financial liability due to specific credit risk be
presented separately in other comprehensive income.
The standards create additional requirements for
public business entities as well.
The measure is effective for public business entities
for fiscal years and interim periods beginning after
December 15, 2017 (calendar year 2018). All others
will adopt for annual periods beginning after December
15, 2018 (calendar year 2019) and interim periods
after December 15, 2019 (calendar year 2020).
Expected soon is a financial standards update to the
financial instrument credit impairment model for assets
measured at amortized costs. The update will exclude
debt securities classified as available-for-sale. It will
also require a current expected credit losses (CECL)
model where expected credit losses over the life of a
loan are recognized when a loan is originated instead
of as losses are incurred. The new standards are
expected to be effective for public business entities
that are SEC filers in fiscal years and interim periods
beginning after December 15, 2018. All other entities,
including non-SEC filing public business entities will
adopt the update for fiscal years beginning after
December 15, 2019. Non-SEC filing public business
entities will have to adopt for interim periods as of that
date; private entities will adopt for interim periods in
the following annual period.
Other FASB Activities
The FASB’s Private Company Counsel endorsed the
new effective date and transition guidance that would
allow private entities to make a one-time election to
adopt of the PCC accounting alternatives without
an assessment of preferability. It also ratified the
Emerging Issues Tax Force (EITF) consensus related
to the recognition of breakage for certain prepaid
stored-value cards, the effect of derivative contract
novations on existing hedge accounting relationships
and contingent put and call options in debt instruments.
Comments and feedback are also being taken related
to the FASB’s recent exposure drafts for rule changes
to the fair value disclosure framework, the definition
of a business and disclosures related to government
assistance.
For More Information
To learn more about these accounting changes and
activities other standards-setting activities, please
see our webinar. If you have specific comments,
questions or concerns about the topics above,
please share them with Mark Winiarski of the MHM
Professional Standards Group. Mark can be reached
at mwiniarski@cbiz.com or 816.945.5614.